>>> Equities
• We continue to see modest upside potential for global
equities. Valuations remain close to historical averages,
and earnings growth should accelerate. The biggest
challenge comes from persistently bullish sentiment.
• European equities are low priced and should benefit from
the ECB’s efforts to reflate the economy, better economic
data surprises and improved earnings growth. On the
other hand, US equities may lag other equity markets.
• The Topix’s recent rise is not due to foreign buying.
Corporate behaviour is changing, with a clear improvement
in profit margins. Japanese valuations are very low.
• EM equities do not look as attractive now with the risk
premium only in line with DM. Previously depressed
sentiment has lifted. Earnings forecasts are still being cut.
• We forecast the USD-denominated MSCI All-Country World
Index at 425 by year-end, implying 3% total return.
• We recommend an overweight in Europe ex-UK equities,
preferring Italy and Spain. We are overweight Japan and
underweight US equities, where valuations are more
expensive. We also downgrade EM equities to neutral.
• We prefer value as a style to growth and quality in an
environment of rising interest rates. We also recommend
sectors leveraged to a recovery in capital spending. Broadly
speaking, we believe that cyclically oriented sectors should
outperform defensive ones.
• We are overweight Financials, Energy, Materials, Industrials
and Technology in our Global Recommended Portfolio. We
are underweight Staples and Healthcare.